AMENDMENTS TO INDIA'S

ARBITRATION ACT: AN

ANALYSIS

TOPICS

ARBITRATION

TYPES OF ARBITRATION

INTRODUCTION

PROCESS OF AMENDMENT

ORDINANCES

DEFICIENCIES WITH THE ACT

CRITICS

MAJOR AMENDMENTS BROUGHT BY THE ORDINANCE

CONCLUSION

SOURCES OF INFORMATION

ARBITRATION

Arbitration is a method for the resolution of disputes outside the courts. It is a form of “alternative dispute resolution” (ADR).

It often used for the resolution of commercial disputes mainly in the context of international commercial transactions.

Certain countries like such as the United States, arbitration is also frequently employed in consumer and employment matters, where arbitration may be mandated by the terms of employment or commercial contracts.

TYPES OF ARBITRATION

VOLUNTARY MANDATORY

BINDING NON-BINDING

INTRODUCTION • The Government of India passed the Arbitration and Conciliation

(Amendment) Ordinance, 2015 amending the Indian Arbitration and Conciliation Act, 1996 with a view to generally restrict the courts from challenging an arbitration award. This article highlights the key provisions of the Ordinance and its likely effect on the dispute resolution landscape in India.

• In Indian arbitration law, the President of India has formally adopted the Arbitration and Conciliation (Amendment) Ordinance 2015 which will bring about major reforms to arbitration in India.

• The Ordinance amends India’s Arbitration and Conciliation Act 1996 .

• The Government of India intends to adopt a model bilateral investment treaty as part of its plan to establish India as an arbitration-friendly jurisdiction worthy of foreign investment.

• The modernization of Indian arbitration law in the Ordinance is the

latest significant step towards making this plan a reality.

PROCESS OF AMENDMENT

• The Indian Government has taken steps to implement long awaited arbitration reforms by promulgating an ordinance, the Arbitration and Conciliation (Amendment) Ordinance, 2015 (the "Ordinance"), amending the Arbitration and Conciliation Act 1996 (the "Act"). These amendments have been on the cards for almost a year and the Government was earlier contemplating following the usual route of obtaining legislative approval for amending the Act.

• The Modi Government's agenda to improve the ease of doing business in India, has led to the introduction of the ordinance.

• Although the Ordinance is effective immediately, it will need Parliamentary approval in the upcoming session.

• The Ordinance largely follows the proposals set forth in a report of the Law Commission of India published last year.

ORDINANCES

Normally, legislative changes are made through parliament. However, the President of India may promulgate an ordinance when the legislature is not in session and is as good as any other law in effect.

However, it must be passed by the legislature within 6 weeks of parliament reconvening. the Indian legislature meets for 3 sessions in a year, each being approximately one month in duration. In effect, parliament sits for just 3 months a year and arguably, with a long list of legislative amendments to push through, the parliamentary route of legislating is simply just not efficient enough to deal with the pressing need to reform.

DEFICIENCIES WITH THE

ACT

In India, Arbitration is often criticized for being very slow, expensive and ineffective.

Taking into consideration the agitation for a complete overhaul of the Act, the Law Commission of India had submitted its 246th report to the Ministry of Law and Justice in August, 2014 (the "Report") with its recommendations to amend the Act.

The recommendations in the Report were intended to make the arbitration process faster and cost effective which reduce the intervention of the courts and make the enforcement of arbitral awards easier.

CRITICS

Critics of the existing Act highlighted the loop holes allowing substantial court intervention, thereby leaving the once thought to be expeditious mechanism, to be as time consuming as any other litigation.

To withhold this, the courts and the Government have taken steps in recent past to ensure that arbitration once again becomes an expedited mechanism for resolving disputes.

Few years ago, the Supreme Court of India in a landmark judgment held that in case of international commercial arbitration, where the venue of arbitration is outside India, the Indian courts will not have any jurisdiction to intervene.

The current Ordinance tries to address this issue amongst others, strengthening the effectiveness of the arbitration mechanism, re-instilled confidence in the process

MAJOR AMENDMENTS BROUGHT BY THE

ORDINANCE

WHAT ARE APPLICATIONS TO INTERNATIONAL

COMMERCIAL ARBITRATION?

Before (Bharat Aluminum Company Limited vs. Kaiser Aluminum) this case decided by the Indian Supreme Court (the "Balco Judgment"), a party to the arbitration could approach the Indian courts for interim relief, if the applicability of Part I of the Act was not expressly or impliedly excluded.

• This led to confusion as there was no clarity on the situations that excluded the Indian courts. Although after the Balco Judgment, it has been made clear that the Indian courts cannot intervene if the seat of arbitration is outside India.

• Now this was regarded as a welcome move as the ordinance addresses this issue by amending section 2(2) of the act which enables the parties to an international commercial arbitration with the seat of arbitration outside India to approach the Indian courts and seeking interim relief, unless the parties have agreed to the contrary.

As a result, parties can now reserve the right to approach Indian courts to find interim relief which was not allowed post the Balco judgment, even if the seat of arbitration was outside India.

INTERIM RELIEF

• To reduce the ability of the court to intervene in arbitration proceedings and to encourage the parties to approach the arbitrator for temporary measures, the Ordinance has inserted two new clauses in Section 9 of the Act.

• It should be noted that once the arbitral tribunal is made ,the courts cannot change the applications according to their circumstances.

INTERIM MEASURES BY THE

ARBITRAL TRIBUNAL

The Ordinance gives powers to grant interim relief for the preservation, custody or inspection of any property, securing the amount in dispute.

Under the Act, orders passed by the arbitral tribunal could not be directly enforced. The Ordinance clarifies that orders passed by the arbitral tribunal would have the same effect as that of an order passed by a court and would be enforceable.

Therefore, if any party found guilty of disregarding or disobeying the orders passed by the arbitral tribunal would be liable for contempt.

This amendment greatly improves the existing regime, highlighting the enforceability of interim relief granted by an arbitral tribunal.

EXPEDITIOUS APPOINTMENT OF AN

ARBITRATOR

It should be noted that the Ordinance has also limited the scope of a party refusing to refer a dispute to arbitration.

Under the amended provisions, even if there is a judgment, decree or order of the Supreme Court or any court, the judicial authority must refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.

EXPEDITIOUS APPOINTMENT OF

AN ARBITRATOR

Under the Act, if the parties failed to constitute the arbitral tribunal, they could approach the court.

• This process was outbreak by delays and confusion created by several Indian court judgments on the scope of interference at the stage of constitution of the arbitral tribunal.

• The Ordinance inserted amendments that provide that the scope of examination must be restricted to the existence of an arbitration agreement.

• Further, amendments have been made to ensure that a petition seeking constitution of an arbitral tribunal under Section 11 of the Act, applied to be disposed of within a period of 60 days from the date of service to the opposite party.

• The new provision should ensure speedy constitution of arbitral tribunals and the commencement of the proceedings.

DISCLOSURE OF INTEREST BY THE

PROPOSED ARBITRATOR BEFORE

APPOINTMENT

Even though the Act provided for disclosures to be given by the arbitrator in case of a conflict of interest, the Ordinance provides for a much more detailed system of reporting.

• It now provides for disclosure by the arbitrator of the likely circumstances, which may be construed as conflict of interest.

• It further provides that in case such circumstances exist then that person would be ineligible for appointment as an arbitrator unless expressly allowed by the parties through a written agreement.

TIME BOUND PROCEEDINGS

The Ordinance added a new provision (the proviso to Section 24) to the Act, which provides that the arbitral tribunal shall hold oral hearings for evidence and oral argument on a day-to-day basis and not grant any adjournments unless sufficient cause is made out.

The arbitral tribunal has powers to impose penalties on a party seeking adjournment without sufficient cause.

The Ordinance adds another new provision (Section 29A) to the Act in order to make the proceedings time bound.

FAST TRACK PROCEDURE

The Ordinance provides for a new

section (29B), inclusive for a fast track mechanism.

• The following are the salient feature of the said mechanism:

• The dispute shall be decided based upon written pleadings, documents and submissions filed by the parties without any oral hearing;

• Oral hearing can be held only if all the parties request, or the arbitral tribunal considers it necessary for clarifying certain issues; and

• The arbitral tribunal shall have the power to call for any further information that it may deem fit.

EXPANSIVE COST REGIME

The costs may include fees and expenses of the arbitrators, courts and witnesses; legal fees and

expenses; administrative costs of the institution and any other costs incurred in relation to the arbitral.

The Ordinance has introduced a new provision under Section 31A of the Act, which gives wide powers to the arbitral tribunal to impose costs and the general rule of

making the unsuccessful party pay costs to the successful party has been introduced.

GROUNDS TO CHALLENGE THE

ARBITRAL AWARD

The Ordinance has narrowed the scope of "public policy"

to include only awards that are: (I) induced or affected

by fraud; or (ii) in contravention with the fundamental

policy of India; or (iii) in conflict with the most basic

notions of morality or justice.

Additionally, it should be noted that another provision of

the Ordinance (amending section 2A of the Act) has been

added to ensure that an arbitral award cannot be set-aside

on the ground of an erroneous application of the law or

by the re-evaluation of evidence.

These clarifications should go a long way to prevent

frivolous litigation challenging arbitral awards.

EASIER ENFORCEMENT

Under the old regime, merely filing an appeal challenging the arbitral award resulted in an automatic stay of the award. This prevented the successful party from enforcing the award and delayed the execution process.

Under the Ordinance however, a mere filing of an appeal challenging the arbitral award does not amount to a stay of the award. A separate application for stay would have to be filed by the loosing party and the court will have to record its reasons in writing for granting a stay of the award and while doing so, the court has the power to direct the losing party to deposit amounts or provide reasonable security as a pre-condition for the grant of stay of the arbitral award.

CONCLUSION It's a well-known fact that India's courts are already overly

burdened with a volume of disputes, frustrating many on-going or proposed commercial projects. But if commercial disputes are resolved more swiftly through arbitration, it will hopefully encourage investments and fast track solutions to project disputes, rather than simply letting them stagnate.

Clearly, the intention behind these amendments brought in by the Ordinance is to ensure that arbitration remains a cost effective, reliable and swift mechanism to resolve contractual and commercial disputes, which is essential to promote the perception that India is becoming an easier place to do business.

However, a common criticism of arbitration in India is that there is too much reliance on the ad hoc approach, which inevitably leads to disputes about how the dispute will be managed and it remains to be seen whether the parties will agree to a more rigid timetable for dispute resolution, which, may not be in the interest of parties who are more likely to be future defaulters.

SOURCES OF INFORMATION

Books

Internet

Articles

Newspaper

Magazines

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